Capital Markets

Trade deficit widens 36pc on weak shilling, rising imports

COAST-SHIPPING

Singapore flagged vessel Mv NYK Clara docks at the Port of Mombasa. FILE PHOTO | NMG

timothy odinga

Summary

  • A trade deficit occurs when a country's imports exceed its exports during a given period.
  • New data by the Kenya National Bureau of Statistics(KNBS) shows that the import bill for the seven months grew by 28 percent to Sh1.168 trillion from Sh915 billion a year ago.
  • Export earnings in the period, however grew by a slower 16 percent to Sh428.2 billion from Sh369.1 billion last year on increased food and other raw materials exports.

Kenya’s trade deficit for the first seven months of the year widened by 35.6 percent to Sh740.5 billion compared to a similar period last year, on the effects of a weakened shilling and improved demand for imports as more sections of the economy reopened.

A trade deficit occurs when a country's imports exceed its exports during a given period.

New data by the Kenya National Bureau of Statistics (KNBS) shows that the import bill for the seven months grew by 28 percent to Sh1.168 trillion from Sh915 billion a year ago.

Export earnings in the period, however grew by a slower 16 percent to Sh428.2 billion from Sh369.1 billion last year on increased food and other raw materials exports.

The mammoth import bill is attributed to a weakened shilling and partial reopening of the economy that has led to expensive imports and increased consumption respectively.

With Kenya being a net importer of machinery, oil, and other secondary products, a depreciation in the local currency leads to an increase in the local price of imports.

Reduced dollar inflows have led to the local currency hitting a 10-month low yesterday against the dollar to close the day at 110.15, the lowest it has hit since December last year.

“Supply for the dollar has been low but demand from corporates paying dividends and in need for dollars for other transactions has been high as a result the shilling has struggled,” Ken Minjire a senior associate for debt and equity ay AIB-AXYS told the Business Daily in an interview.

Expenditure on Industrial materials, which constitute factory inputs and other non-food supplies, stood at Sh467.3 billion representing 40 percent of the total import bill.

The country’s expenditure on oil imports rose sharpest in the period to Sh190.97 billion from Sh130.5 billion spent in the January-July period in 2020.

The rise in fuel consumption during the period is attributed to increased demand compared to last year when the country had imposed travel restrictions to contain the Covid-19 pandemic.